Wrap Text
Audited provisional results for the year ended 29 February 2016
Buildmax Limited
(Incorporated in the Republic of South Africa)
Registration number 1995/012209/06
Share code: BDM ISIN: ZAE000167318
("Buildmax" or the "group" or the "company")
Audited provisional financial results for the year ended 29 February 2016
Operational overview
Buildmax Limited, through its subsidiary Diesel Power, is a diversified supplier of opencast mining
services.
Mining services and equipment sales & rental
The scope of these services include expertise in mine planning, pit design, production scheduling,
drilling and blasting, opencast mining, pillar mining, surveying and mine rehabilitation. The
companies that form part of the business include Diesel Power Opencast Mining ("Diesel Power")
and Buildmax Equipment. Diesel Power Civils, a division of Diesel Power, was closed at the end of
February 2016.
Commentary
Trading conditions in the mining and construction industries remain challenging and macro drivers,
continue to weigh heavily on the business sectors that the group serves. The slowing growth of the
Chinese economy and negligible growth in Europe have resulted in a significant drop in the demand
for mining commodities giving rise to over stocking in the supply chain.
Lower coal prices, Eskom's management of coal off-take coupled with its pressure on the mines
and service providers to be 50% plus 1 share black owned, has created uncertainty and caused
coal mining companies to substantially reduce production calls. Mine owners have understandably
become cautious to invest in capital projects. As a result, the market for opencast mining services
has diminished, triggering an oversupply of services, increased competition, lower prices, cautious
lenders, bearish investors, labour and community unrest and a general liquidity crunch in the sector.
This environment has been exacerbated by a global surplus of second hand plant and a substantial
drop in second hand values. In South Africa the weaker rand was followed by a considerable
increase in the cost of new plant constraining the ability to replace and finance equipment.
Unfortunately, the increase in new equipment prices has not translated into improved values of
second hand equipment due to oversupply and financing constraints.
The following items negatively impacted the company's results:
- Due to the inability of Messina Copper to meet its payment obligation to Diesel Power Botswana,
there was a pre-tax impairment of R144.0 million as a result of writing off the debtor and
impairing the associated plant and equipment. Messina Copper is currently in the process of
being liquidated and it is unlikely that it's liquidation will realise sufficient proceeds to
settle its concurrent creditors. Diesel Power Botswana has provided accordingly.
- The limited number of new contracts and the competition in the market has made it difficult to
win any significant mining contracts at acceptable margins.
- The inability to respond rapidly enough and reduce fixed costs to the changed business
environment which requires a more flexible business model.
- The ongoing liquidity crunch being experienced in the sector which is largely driven by bearish
sentiment about the prospects of mining in a highly regulated environment with unsettled
legislation.
- Movement in the exchange rate has substantially increased the price of spares and new
equipment.
- The escalation of mining rates has not been adequate to match cost inflation.
Over the past 18 months, whilst difficult business conditions have continued, management have
changed the structure of the company to match the differing needs of the market, while retaining
important aspects of the cost structure, such as uncompromising safety. Management have
responded with the following turnaround action plan which will enable the company to become more
agile and profitable whilst still maintaining its high standards:
- Right-sized the business to reduce fixed costs.
- Terminated loss making contracts.
- Restructured bank financing to improve liquidity.
- Adopted a less asset intensive and more flexible business model.
- Diversified into other commodities and regions.
- Reached a settlement with creditors in Botswana.
Whilst the prospects for mining contractors have been depressed during the past 2 years, we remain
confident that there will always be a demand for reliable quality opencast contractors with
experience and world class management and safety systems.
Safety and quality management
The mining division has maintained and boasts a proud track record of more than 53 million fatal
free injury hours and almost 6 million fatal free shifts. Safety is a core value of the group and is
integral to the way it conducts business. This is demonstrated by its commitment to high standards
and assignment of specific responsibilities for safety. The value the group places on the safety of
employees and sub-contractors, is reflected in the safety vision: "Committed to Efficient Zero Harm
Production".
The safety policy and framework supports our safety vision, provides direction and sets standards
for operations to develop and manage their proactive safety programs and strategies with the
objective of continuously improving their safety performance. Our operations continue to maintain
certification for the OHSAS 18001: 2007 health and safety management standard, as well as the
ISO 9001: 2008 quality management standard.
People
The quality of our people is a critical source of our competitive advantage. The company recognise
that in order to achieve the sustained high performance that is necessary to meet the demands of
its business environment, it needs to attract, retain and continuously develop its employees at all
levels. Whilst retaining key staff, we ran phase 3 and 4 voluntary retrenchment programmes due to
lower volumes of work and the closing down of the civils division. Cumulatively, these programmes
achieved annualised savings of approximately R74.0 million at a non-recurring cost of
approximately R34.0 million.
Investment in learning and development remains a priority. During the year the group invested
approximately R19.3 million in a range of training, learning and career development opportunities.
Through our graduate training programme for previously disadvantaged individuals, 4 black
engineers qualified and 2 have been employed on a full time basis at Diesel Power ensuring an
ongoing pipeline of mining leaders and bolstering our transformation strategy.
Plant and equipment
The book value of plant and equipment is R474.9 million, a decrease of 37% from R754.2 million in
the previous year as a result of depreciation, impairments and the disposal of surplus equipment to
align to the group's 'asset lite' business model.
Following management's bi-annual review of the current economic useful lives and residual values
of plant that have exceeded its useful life and/or not in use, management are satisfied that no
impairments are necessary. The equipment in Botswana was impaired due to the cessation of the
Messina Copper contract.
Financial
The group's financial performance is summarised as follows:
- Net asset value reduced to R219.9 million from R440.9 million as a result of the comprehensive
loss (attributable to Buildmax shareholders) of R221.0 million. This loss includes impairments
and restructuring costs of R239.4 million and is made up as follows:
- DPBotswana impairment of R144.0 million
- Loss attributable to sale of assets of R40.5 million
- Reversal of a deferred tax asset of R47.4 million
- Retrenchment costs of R4.3 million
- Provision raised for the closure of Diesel Power Civils of R3.2 million
- Despite these problems, the company reduced net interest bearing debt (including capitalised
finance leases) to R270.7 million, a reduction of R102.3 million.
- Improved the net cash position by R56.1 million.
- Improved the net working capital position by R31.2 million.
- Revenue decreased from R1.079.3 million to R944.6 million.
- Asset turnover improved by 39% from 1.4 times to 2.0 times in line with the group's strategy to
adopt a flexible business model.
- Headline loss per share increased from 77.6 cents to 84.0 cents per share.
- Basic loss per share increased from 118.4 cents to 125.6 cents per share.
Debt restructuring
The historic asset based funding facilities of Diesel Power amounting to R208.0 million have been
replaced with a term loan which is repayable over 45 months, in equal quarterly instalments of
approximately R18.9 million of which the first 2 instalments were paid during the financial year.
In addition, an amount of R8.0 million was pre-paid against the term loan relating to proceeds from
the sale of assets.
Interest rates, market related pricing, covenants and security provisions typical of this type of facility
apply.
This successful debt restructuring significantly improves the working capital position of the group
and the term loan reduces in parallel with the remaining life of those assets provided as security.
Diesel Power Opencast Mining (Pty) Limited breached its debt to equity covenant for which it received
condonation from its Lenders subsequent to year end. The Group met the other banking covenants.
Going concern
Although the group's balance sheet reflects a net asset value of R219.9 million and contracts are
profitable at a site level, cashflow remains a concern for the next 12 months due to overhead site
related constraints which negatively impact productivity.
Whilst the board has determined the business to be a going concern, an emphasis of matter was raised
highlighting the fact that the business is reliant on ongoing Lenders support.
Failing receipt of the ongoing support of Lenders, this will indicate the existence of a material
uncertainty which should be taken into account when assessing the company's ability to continue as a going
concern.
Sustainability
The board and executive leadership team remain committed to building a sustainable business that
takes into account the economic, social and environmental impacts on the communities in which
the group operates.
Transformation
Under its current BEE certification, Diesel Power maintains a Level 4 BEE rating.
Governance
Buildmax complies with the Companies Act, 71 of 2008 and the Listings Requirements of the JSE
Limited.
Outlook and prospects
We are fortunate to have meaningful, value-adding and service orientated contractual relationships
with most of the leading mining groups in the country. Whilst activity in the reporting period has
been subdued, management believe that mine owners will continue to outsource mining services
to contractors and our aim is to leverage these strategic alliances.
In order to unlock our strategy, we are highly reliant on our ability to maintain our volumes in the
coal sector which is under pressure largely due to low commodity prices exacerbated by weak
global demand. We are however confident that the current bearish outlook is cyclical and that we
are well positioned to take advantage of outsourcing opportunities. We believe that the propensity
to outsource could increase as a result of the mining houses wanting to reduce risk and preserve
capital.
Our strategy, in a tough operating environment, is to continue to aggressively tender for new work
at sustainable margins.
Having secured the debt restructure, continuing to reduce our fixed cost base and successfully
moving towards a less asset intensive business model, prospects for 2017 are significantly better.
Buildmax has been proactive in exploring industry related consolidation opportunities which, in the
company's view, is a sector imperative in order to remain competitive. We believe that the continued
low mining volumes will necessitate consolidation in the sector to unlock synergies and reduce the unit
cost of overheads. Industry consolidation should improve profitability, attract capital investment and
support transformation imperatives.
Dividend
In terms of the agreement entered into between Diesel Power Group Holdings and Tylox (Pty) Limited,
an ordinary dividend in the amount of R200,000 was declared by Diesel Power Group Holdings (Pty) Limited
to its empowerment shareholders.
There was no dividend declared by Buildmax.
Acknowledgements
The board would like to express its appreciation to all its customers, staff, business partners,
shareholders and other stakeholders for their support and continued confidence in the sustainability
of the group and its underlying business.
On behalf of the board:
Colin Wood Terry Bantock Christie Els
Chairman CEO CFO
Johannesburg
31 May 2016
Summarised consolidated statement of financial position as at 29 February 2016
Audited Audited
29 February 2016 28 February 2015
R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 474 866 754 195
Deferred taxation 27 521 43 067
502 387 797 262
Current assets
Inventories 10 351 10 668
Trade and other receivables 140 019 178 863
Taxation receivable 6 387 4 811
Bank and cash balances 47 677 6 291
204 434 200 633
Assets classified as held for sale 13 747 50 500
Total assets 720 568 1 048 395
EQUITY AND LIABILITIES
Share capital and premium 1 994 196 1 994 196
BEE IFRS 2 cost 1 195 1 195
Foreign currency translation reserve 4 371 617
Share based payment reserve 13 466 13 466
Accumulated loss (1 793 299) (1 568 572)
Attributable to equity holders of the parent 219 929 440 902
Outside shareholders' interests (48 043) (23 018)
Total shareholders' interests 171 886 417 884
Non-current liabilities
Interest-bearing liabilities 165 643 145 802
Capitalised finance leases 9 777 32 613
Deferred taxation 14 618 27 531
190 038 205 946
Current liabilities
Interest-bearing liabilities 77 118 113 737
Capitalised finance leases 21 320 27 935
Trade and other payables 208 427 216 431
Taxation payable 1 820 2 101
Bank overdrafts 44 454 59 177
353 139 419 381
Liabilities directly associated with assets held for sale 5 505 5 184
Total equity and liabilities 720 568 1 048 395
Shares in issue at end of year 178 782 178 782
Net asset value per share (cents) 123.0 246.6
Summarised consolidated statement of comprehensive income for the year ended 29 February 2016
Audited Audited
year ended year ended
29 February 2016 28 February 2015
R'000 R'000
Continuing operations
Revenue 704 940 622 723
Operating loss before depreciation and impairment ("EBITDA") ( 9 600) (9 556)
Depreciation (112 094) (139 050)
Operating loss (121 694) (148 606)
Impairment of property plant and equipment (413) (2 000)
Loss before interest and taxation ("PBIT") (122 107) (150 606)
Net interest paid (35 642) (32 387)
Interest paid (35 695) (32 647)
Interest received 53 260
Loss before taxation ("PBT") (157 749) (182 993)
Taxation 6 002 52 856
Loss for the year ("PAT") (151 747) (130 137)
After tax loss from discontinued operations (see note below) (97 805) (98 333)
Loss for the year (249 552) (228 470)
Other comprehensive income/(loss) for the year:
Foreign currency translation reserve 3 754 (2 015)
Total comprehensive loss for the year (245 798) (230 485)
Loss for the year attributable to:
Equity holders of the parent (224 527) (211 697)
Outside shareholders' interests (25 025) (16 773)
(249 552) (228 470)
Total comprehensive loss for the year attributable to:
Equity holders of the parent (220 773) (213 712)
Outside shareholders' interests (25 025) (16 773)
(245 798) (230 485)
Reconciliation of headline loss for the year ended 29 February 2016
Audited Audited
year ended year ended
29 February 2016 28 February 2015
R'000 R'000
Continuing operations
Loss for the year attributable to shareholders of Buildmax (137 107) (115 961)
Adjusted for:
Add back loss on disposal of property, plant and equipment 38 790 12 669
- Gross 53 875 17 596
- Taxation (15 085) (4 927)
Impairment of property, plant and equipment 297 1 440
- Gross 413 2 000
- Taxation (116) (560)
Headline loss attributable to ordinary shareholders (98 020) (101 852)
Audited Audited
year ended year ended
29 February 2016 28 February 2015
R'000 R'000
Discontinued operations
Loss for the year attributable to shareholders of Buildmax (87 420) (95 736)
Adjusted for:
Add back loss/(profit) on disposal of property, plant and equipment 1 923 (1 255)
- Gross 2 465 (1 742)
- Taxation (542) 487
Impairment of property plant and equipment, goodwill and other intangibles 33 426 60 070
- Gross 42 854 72 116
- Taxation (9 428) (12 046)
Headline loss attributable to ordinary shareholders (52 071) (36 921)
Supplementary information
Loss per share
Audited Audited
year ended year ended
29 February 2016 28 February 2015
cents cents
Headline loss per share (cents) (84.0) (77.6)
Continuing operations (54.8) (57.0)
Discontinued operations (29.1) (20.7)
Basic loss per share (cents) (125.6) (118.4)
Continuing operations (76.7) (64.9)
Discontinued operations (48.9) (53.5)
Shares in issue ('000)
- at end of the year 178 782 178 782
- weighted 178 782 178 782
*There are no dilutive instruments in issue
Summarised consolidated statement of cash flows for the year ended 29 February 2016
Audited Audited
year ended year ended
29 February 2016 28 February 2015
R'000 R'000
Operating activities
Loss before taxation (247 600) (292 117)
Working capital movement 31 157 29 775
Impairments of property, plant & equipment, goodwill and intangible assets 43 267 74 116
Other non-cash flow items 165 952 182 664
Net interest paid 40 349 44 172
Cash generated from operations 33 125 38 610
Net interest paid in cash (40 349) (44 172)
Dividends paid (200) (200)
Taxation paid (1 857) (25 260)
Cash utilised by operating activities (9 281) (31 022)
Investing activities
Purchase of property, plant and equipment
- Expanding operations - (42 469)
- Maintaining operations (31 943) (232 174)
Environmental guarantee investment (825) (904)
Proceeds on disposal of held for sale mining rights and related fixed properties 37 000 -
Business acquisition - (20 667)
Proceeds on disposal of property plant and equipment 107 389 225 817
Net cash generated/(utilised) by investing activities 111 621 (70 397)
Financing activities
Interest-bearing liabilities raised 41 712 238 690
Interest-bearing liabilities repaid (87 943) (283 645)
Net cash flows generated from financing activities (46 231) (44 955)
Net increase/(decrease) in cash and cash equivalents 56 109 (146 914)
Cash and cash equivalents at the beginning of the year (52 886) 94 028
Cash and cash equivalents at the end of the year 3 223 (52 886)
Summarised consolidated statement of changes in equity
Outside Total
Share capital and Share based BEE IFRS2 Foreign currency Accumulated Attributable to equity shareholders' shareholders'
premium payment reserve costs translation reserve loss holders of the company interest interest
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balances as at 28 February 2014 1 994 196 12 120 1 195 2 632 (1 356 675) 653 468 (6 245) 647 223
Share based payments 1 346 1 346 1 346
Total comprehensive loss for the year
Continuing operations (2015) (124 634) (126 649) (15 354) (142 003)
Discontinued operations (87 063) (87 063) (1 419) (88 482)
Dividends paid by Diesel Power Group Holdings to
its empowerment partner (200) (200) (200)
Balances as at 28 February 2015 1 994 196 13 466 1 195 617 (1 568 572) 440 902 (23 018) 417 884
Total comprehensive loss for the year
Continuing operations (137 107) (137 107) (14 640) (151 747)
Discontinued operations 3 754 (87 420) (83 666) (10 385) (94 051)
Dividends paid by Diesel Power Group Holdings to
its empowerment partner (200) (200) (200)
Balances as at 29 February 2016 1 994 196 13 466 1 195 4 371 (1 793 299) 219 929 (48 043) 171 886
Summarised segmental analysis for the year ended 29 February 2016
Audited Audited
year ended year ended
9 February 2016 28 February 2015
R'000 R'000
EXTERNAL REVENUE
Continuing operations 704 940 622 723
Mining services - Diesel Power 704 940 622 723
Mining services - Equipment sales and rental - -
Discontinued operations 239 675 456 558
Africa opencast mining operations (Congo and Botswana) 121 067 191 839
Civils and Earthworks 115 564 182 562
Aggregates and Quarries 3 044 82 157
944 615 1 079 281
INTER-SEGMENT REVENUE
Continuing operations 13 868 16 746
Mining services - Diesel Power - 3 985
Mining services - Equipment sales and rental 13 868 12 761
Discontinued operations - 5 800
Africa opencast mining operations (Congo and Botswana) - -
Civils and Earthworks - -
Aggregates and Quarries - 5 800
Audited consolidated financial results for the year ended 29 February 2016
13 868 22 546
EBITDA
Continuing operations (9 600) (9 556)
Mining services - Diesel Power (10 678) (10 388)
Mining services - Equipment sales and rental 4 397 4 824
Total mining services (6 281) (5 564)
Corporate head office (3 319) (3 992)
Discontinued operations (27 319) 1 967
Africa opencast mining operations (Congo and Botswana) (33 984) 19 981
Civils and Earthworks 9 240 5 172
Aggregates and Quarries (2 575) (23 186)
(36 919) (7 589)
OPERATING LOSS BEFORE IMPAIRMENTS
Continuing operations (121 694) (148 713)
Mining services - Diesel Power (121 247) (148 332)
Mining services - Equipment sales and rental 2 989 3 678
Total mining services (118 258) (144 654)
Corporate head office (3 436) (4 059)
Discontinued operations (42 290) (24 493)
Africa opencast mining operations (Congo and Botswana) (48 955) (826)
Civils and Earthworks 9 240 5 172
Aggregates and Quarries (2 575) (28 839)
(163 984) (173 206)
After tax loss from discontinued operations:
Audited Audited
year ended year ended
29 February 2016 28 February 2015
R'000 R'000
Revenue 239 675 456 558
Operating (loss)/profit before depreciation, amortisation and impairment ("EBITDA") (27 319) 1 967
Depreciation (14 971) (26 567)
Operating loss before amortisation and impairment (42 290) (24 600)
Amortisation of intangible assets - (623)
Operating loss before impairment (42 290) (25 223)
Impairment of property plant and equipment, goodwill and intangible assets (42 854) (72 116)
Loss before interest and taxation ("PBIT") (85 144) (97 339)
Net interest paid (4 707) (11 785)
Interest paid (5 208) (13 268)
Interest received 501 1 483
Loss before taxation ("PBT") (89 851) (109 124)
Taxation (7 954) 10 791
Loss for the year ("PAT") (97 805) (98 333)
Notes to the audited provisional financial results
The audited provisional financial results have been prepared in accordance with International
Financial Reporting Standards, IAS 34: Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
by the Financial Reporting Standards Council, the JSE Listings Requirements, and the Companies
Act, 71 of 2008.
The accounting policies used in the preparation of these annual results are consistent with those
used in the annual financial results for the year ended 28 February 2015. These provisional financial
statements have been prepared on the historical cost basis.
This report was compiled under the supervision of Mr CS Els, Chief Financial Officer CA(SA). The
unmodified audit report, issued by Grant Thornton Johannesburg Partnership, which included an
emphasis of matter, has been done so based on the underlying annual financial statements from which
these summarised provisional financial results have been derived and are available for inspection
at the registered office of the company. This summarised report is extracted from the audited financial
information, but is itself not audited. The directors take full responsibility for the preparation of
the provisional report and for the accurate extraction of the financial information from the underlying
annual financial statements.
Whilst the board has determined the business to be a going concern, an emphasis of matter was raised
highlighting the fact that the business is reliant on ongoing Lenders support.
Failing receipt of the ongoing support of Lenders, this will indicate the existence of a material
uncertainty which should be taken into account when assessing the company's ability to continue as a going
concern.
Estimates and contingencies
Management makes estimates and judgments concerning the future with regards to opencast
mining contracts, provisions, claims, depreciation methods and residual values when estimating
the recoverable amounts of assets.
The resulting estimates and judgments can only approximate the actual results. Estimates and
judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the
circumstances.
The group has contingent liabilities in respect of legal claims and contractual guarantees arising
in the ordinary course of business. It is anticipated that no material liabilities will arise from the
contingent liabilities other than those provided for.
Operations
The operating results of Diesel Power Botswana, Diesel Power Congo, the Aggregates and Quarries business and the civils
and earthworks division have been reported as discontinued operations.
Mining services and equipment sales & rental
The scope of these services include expertise in mine planning, pit design, production scheduling,
drilling and blasting, opencast mining, pillar mining, surveying and mine rehabilitation. The
companies that form part of the business include:
- Diesel Power
- Buildmax Equipment
- Diesel Power Botswana (discontinued operation)
- Diesel Power Congo (discontinued operation).
Civils and earthworks (discontinued operation)
As tough trading conditions continue in South Africa, with a particularly negative impact on the
construction industry, the prospects for civils contractors are poor and as there were no meaningful
projects on the horizon, this division was closed at the end of February 2016.
The mining service business will, however, tender for selected civils work that is strategic to our
mining activities and respective clients.
Aggregates and quarries (discontinued operation)
Letamo quarry, currently in care and maintenance is still owned by the group and an expression of
interest has been received to purchase it. Post year-end, Letamo saw renewed interest in that area
for its aggregate.
Letamo, the remaining assets and related liabilities of Buildmax Aggregates and Quarries continued
to be classified as "held for sale" at year-end.
Directors
TP Bantock (CEO)
CS Els (CFO)
J Mathebula
CB Brayshaw*#
MD Lamola*
DJ Mack*
MW McCulloch*#
G Montgomery*
BT Ngcuka*
CJM Wood*# (Chairman)
*Non-executive
#Independent
Company secretary
GH Miller
Registered office
Reef Insurance Brokers Building
2 Mowbray Avenue
Benoni
1500
(PO Box 11962, Rynfield, 1514)
Sponsor
Questco (Pty) Limited
1st Floor, Yellow Wood House
Ballywoods Office Park
33 Ballyclare Drive
Bryanston, 2021
Auditors
Grant Thornton Johannesburg Partnership
Registered Auditors Chartered Accountants (SA)
52 Corlett Drive, Wanderers Office Park
Illovo, 2196
www.buildmax.co.za
Date: 31/05/2016 01:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.